Better than expected third-quarter corporate earnings
Market Recap Week ending 10/18/19
Third-quarter corporate earnings season kicked off last week, and on the margin, the announced results were better than expected. Financials, Transportation issues, and Healthcare companies outperformed. Constructive tones on an agreement between the UK and the EU to avoid a hard Brexit also continued to help market sentiment. The rhetoric surrounding the US and China trade negotiations were somewhat muted last week, but there were a couple of headlines that tempered the prior week’s enthusiasm. Additionally, economic data reported in the week continued to send investors mixed signals on the US economy while indicating a continued slowdown in global economic growth.
Fears about earnings results for the third quarter were temporarily alleviated last week when solid results were announced in the Financial, Transportation, and Healthcare sectors. JP Morgan kicked things off with better than expected results and also suggested in their Q&A that the consumer continues to be doing well. Citi bank, Wells Fargo, and Bank of America also reported better than expected results. Transportation stocks, which are often used as a proxy to the health of an economy, also did quite well last week after several companies in the sector reported strong results. United Airlines, trucking company- JB Hunt, and railroad companies CSX and KSU pushed the sector higher. Within the Healthcare sector, United Health posted much better than expected results, and Johnson and Johnson also reported an excellent quarter. However, J&J’s strength was diminished later in the week when they said that tests found their talcum powder had traces of arsenic- the news sent shares tumbling.
Negotiations on Brexit took a decisive turn during the week, where the two sides agreed on a plan that would avoid a hard exit. However, the proposal still needed to be approved within Parliament and was set for a vote on Saturday. The news continued to strengthen the Pound and the Euro and also provided positive sentiment for the markets. On the US/China trade front, investors continued to seek more details about the prior week’s trade announcement, but both sides produced very little on the details. There were headlines during the week that suggested the Chinese would not buy the 50 billion in US Agriculture products unless the US cut current tariffs further.
Economic data in the US continues to show mixed signals. If you will recall, a couple of weeks ago, we had robust preliminary data out on US Consumer Confidence, which encouraged the markets that the consumer continues to be on solid footing- this notion is echoed in the strong jobs data too. However, last week retail sales missed the mark by a large margin. The result came in at -0.3% versus expectations of an increase of 0.6%. The result helped increase the probability of October Fed rate cut. That said, concerns surrounding global growth continue. China reported 3Q GDP growth of just 6% which is the lowest level in 27 years.
Most US indices ended the markets with gains last week. The exception was the Dow that was beaten up on Friday due to two of its major components, J&J and Boeing, selling off materially on bad news. The Dow ended the week with a -0.2% loss, the S&P gained 0.5%, the NASDAQ increased 0.4%, and the Russell 2000 outpaced the others with a nice 1.6% rally. US Treasuries were relatively quiet last week. The 2-year note yield decreased three basis points to close at 1.57%, and the 10-year bond yield was unchanged on the week closing at 1.75%. Oil was off a fraction with WTI closing at 53.76 a barrel. There were no changes to our models last week.